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Investors opt for bonds to escape wrath of Covid-19

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JAMES ANYANZWA

By JAMES ANYANZWA
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East African stockmarkets have started feeling the impact of Coronavirus that has hit global economies after three countries in the region confirmed outbreak of the virus.
According to Economists the coronavirus fears have sparked investor rush for government bonds away from the volatile stockmarkets.

The UK-based business publication Financial Times, the debt rally globally has underscored the enduring appeal of bonds as a counterweight that gains when riskier investments decline.

Bond markets around the world remain some way short of the extreme levels hit in August and September last year, when more than $17 trillion of bonds carried a sub-zero yield.

The EastAfrican has learnt that stockmarket investors are worried of the long term economic impact of the Covid-19, and the market has started pricing in such fears pushing share prices to record lows, as investors dump stocks.

“The disruption will likely be negative for economic activity and asset prices. In the very near-term, there is a flight to safety, with negative implications for equity markets across emerging markets. Investors will also take the time to assess the growth fallout from the Coronavirus situation,” Razia Khan, Standard Chartered Bank’s chief economist in-charge of Africa and Middle East region told The EastAfrican.

“While individual companies may buck the overall trend—the focus on mobile money in Kenya and elsewhere for example, home delivery services—it is a bearish environment for equities more generally. The global economy has not seen a shock of this nature before, with a significant disruption to services and household consumption across multiple geographies,” added Ms Khan

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Market analysts said local equity markets have started witnessing an increase in portfolio outflow that are pushing share prices to record lows.

“Investors should take advantage of the lower prices to purchase value stocks that are currently trading below their fair values,” said analysts at AIB Capital.

On Friday last week, stock prices of all the eight firms listed on the Rwanda Stock Exchange (RSE) remained unchanged while the Rwanda Share Index (RSI) and All Share Index remained unchanged at 121.87 and 150.16 respectively.

But the Rwandan bond market recorded a total of rwf 458.86 million ($476,757) worth of bond traded in seven (7) deals during the entire week.

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In Kenya, equity turnover on the Nairobi Securities Exchange fell by 3 percent to Ksh778.82 million ($7.78 million) from Ksh802.35 million ($8.02 million) while bond turnover increased 46 percent to Ksh5.52 billion ($55.2 million) from Ksh3.77 billion ($37.7 million) in the same period. The number of bond deals increased to 98 from 91.

In Uganda all stock prices either dropped or remained unchanged save for the pharmaceutical firm Cipla whose share price rose by two (2) percent to Ush102 ($0.03) from the previous day’s Ush 100 ($0.02) per share.

During the same day stock prices on Dar es Salaam Stock Exchange (DSE) either declined or remained the same.

The Tanzania Share Index (TSI) and Tanzania All Share Index (DSEI) dropped by 0.09 percent and 44.99 percent to 3,499.03 and 1,848.82 respectively.

Key losers on the DSE included East Africa Breweries Ltd (EABL), Jubilee Holdings, KCB, Nation Media Group (NMG) and DSE Plc.

In Uganda, all stock prices either dropped or remained unchanged save for Jubilee Holdings and Uchumi Supermarket that rose 0.64 per cent and 4.11 per cent to Ush10,977.69($2.9) and 10.14 ($0.002) respectively.

During the week ended March 13, the Nairobi All Share Index (NASI) and NSE 20 share price indices declined by 9.7 per cent and 7.5 per cent respectively while market capitalisation declined by 9.7 per cent.

On the other hand, government securities recorded increased demand with Treasury bills auction of March 12 receiving bids totalling Ksh 63.4 billion ($634 million) against an advertised amount of Ksh 24 billion ($240 million), representing a performance of 264 per cent.

As a result, interest rates on the 182-day and 364-day Treasury bills declined to 8.1 per cent and 9.1 per cent from 8.18 per cent and 9.31 percent respectively, while the 91-day Treasury bill rate remained virtually unchanged at 7.13 per cent, according to central bank’s weekly Economic indicator report dated March 13 2020

Kenya’s stockmarket halted trading on March 13 as investors dumped shares in blue-chip companies over concerns of the likely impact of Coronavirus on the country’s economy.



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